In intellectual property disputes, the strength of a section 75-1.1 claim or an unfair competition claim often rises or falls with a trademark infringement claim. For instance, N.C. Gen. Stat. § 80-12 provides that a violation of state trademark law constitutes a per se violation of section 75-1.1. Additionally, while a violation of the federal Lanham Act does not constitute a per se violation of section 75-1.1, each of the federal district courts in North Carolina has noted that section 75-1.1 prohibits the same type of activity prohibited by the Lanham Act. Thus, litigants alleging section 75-1.1 claims should be aware of what is required to successfully allege a trademark infringement claim.

Today’s post looks at how the Fourth Circuit’s “likelihood of confusion” analysis in trademark cases remains steadfast despite the advent of new forms of internet advertising. In Passport Health, LLC v. Avance Health System, Inc., the Fourth Circuit followed its original analysis from Pizzeria Uno v. Temple, a case from 1984, to reject claims for trademark infringement, passing off, unfair competition, and violation of section 75-1.1. The Fourth Circuit ultimately affirmed summary judgment to the defendant because the defendant’s use of the plaintiff’s trademark did not create a likelihood of confusion. 

Setting the Baseline: The Pizzeria Uno Factors

The typical trademark case requires a plaintiff to prove that the use of a registered mark causes a likelihood of consumer confusion.

A plaintiff enjoys a presumption of a “likelihood of confusion” if the defendant’s use of the trademark was intended to exploit the plaintiff’s good will. However, the Fourth Circuit has refused to apply this presumption where the use of the trademark was for an unquestionably legitimate activity. Rather, the presumption is based on the premise that if a defendant was attempting to deceive the public, the defendant cannot defend its infringing conduct by asserting that the public was not actually deceived.

If the plaintiff is not entitled to presume that a “likelihood of confusion” exists, the Fourth Circuit analyzes nine factors to determine if use of the plaintiff’s mark created a likelihood of confusion:

1. 1. 1. the strength or distinctiveness of the original mark;
      2. the similarity of the original mark compared to the copied mark;
      3. the similarity of the goods/services that each of the marks identify;
      4. the similarity of the facilities the two parties use in their businesses;
      5. the similarity of the advertising used by the two parties;
      6. the defendant’s intent in copying the mark;
      7. whether the copied mark resulted in actual confusion;
      8. the quality of the defendant’s product; and
      9. the sophistication of the consuming public.

The Fourth Circuit’s 1984 decision in Pizzeria Uno established the first seven factors. In that case, the court balanced those factors and held that a restaurant called Taco Uno had infringed the trademarked name of the plaintiff’s restaurant, Pizzeria Uno. Applying the factors, the Fourth Circuit held that (1) the word “Uno” was a distinctive mark, especially based on the way it was used in advertising; (2) the similarity of the two restaurant names was likely to result in confusion; (3) both parties offered similar restaurant services and facilities; (4) the parties advertised in different states, but a consumer who saw advertising for both establishments could have assumed that the restaurants were related; and (5) there was no actual customer confusion between the restaurants. After balancing these factors, the Fourth Circuit held that there was a likelihood of confusion between the two restaurant names.

Twelve years later, the Fourth Circuit added the final two factors to its likelihood-of-confusion analysis.

Passport Health, LLC v. Avance Health System, Inc.

Search engines like Google and Bing allow advertisers to bid on advertising keywords and phrases (“AdWords”) such that clickable advertisements appear in search results for those AdWords. The highest bidders receive preferred advertisement locations on the search results page, and in turn, the advertisers pay the search engine for each click that they receive from the ad. Bidding is ongoing, so advertisers must maintain competitive bid amounts.

Both Passport Health, LLC and Avance Care, P.A. provide travel-related health-care services in North Carolina. Passport Health has registered three “PASSPORT HEALTH” trademarks with the U.S. Patent & Trademark Office.

In 2008, Avance’s marketing support company began bidding on the AdWord “passport health” on Google and Bing to promote Avance’s services. Passport Health sent Avance a cease-and-desist letter in 2013, alleging that Avance was infringing on its trademarks by purchasing the AdWord phrase “passport health,” as the resulting advertisement read “Passport Health Clinic – Serving the Triangle Metro Area in NC.” After receiving the warning, Avance’s marketers continued to bid on the AdWord “passport health.”

In 2013, Passport Health filed a complaint in the United States District Court for the Eastern District of North Carolina against Avance for trademark infringement. Likely realizing that the costs of a lawsuit were not worth the extra clicks, Avance ordered its marketing company to stop bidding on the AdWord “passport health.” Avance advised Passport Health that it had ceased bidding on this AdWord in Google and Bing and that it would refrain from bidding on this AdWord in the future. In response, Passport Health dropped its lawsuit.

In 2017, Passport Health realized that Avance had continued bidding on “passport health” in Bing’s search engine, despite Avance’s claim in 2013. Passport Health filed a second federal suit against Avance, alleging claims for trademark infringement under the Lanham Act, violation of section 75-1.1, breach of contract, and common law unfair competition. Upon receiving the complaint, Avance realized that the AdWord was still active on Bing. It also learned that, from 2014 to 2017, this unauthorized usage had generated “forty-one clicks, seven of which occurred in the same month the suit was filed.”

Are AdWords Bad Words?

Both parties moved for summary judgment. In December 2018, the district court granted summary judgment in favor of Avance.

The district court rejected Passport Health’s argument that the use of the phrase “passport health” as an AdWord created any likelihood of confusion.

As an initial matter, the district court refused to afford Passport Health a presumption of “likelihood of confusion” because there was no evidence that Avance actually intended to exploit Passport Health’s good will. Avance had instructed its marketing company to stop bidding on the AdWord in 2013, and there was no evidence that Avance or the marketing company intended that the resulting advertising contain the phrase “passport health.”

Because Passport Health was not entitled to a presumption of confusion, the district court weighed the factors from Pizzeria Uno to determine whether a likelihood of confusion existed. It held that “the most important factors in this case weigh decidedly in favor of a finding that there was no likelihood of confusion.” Thus, it granted summary judgment on the trademark infringement claim.

After determining that there had been no trademark infringement, the court concluded that the tests for common law unfair competition and unfair and deceptive trade practices are “similar to that for trademark infringement.” As a result, summary judgment as to those claims was also appropriate.

Fourth Circuit Concludes that Clickbait Is Not Confusing

On appeal, the Fourth Circuit agreed that Passport Health was not entitled to a presumption of “likelihood of confusion.” It then balanced the Pizzeria Uno factors and concluded that there was no likelihood of confusion.

• First, Passport Health conceded to the district court that it had not considered the mark to be conceptually and commercially strong. The Fourth Circuit therefore made no decision on the strength of the mark.
• Second, the court recognized that Avance’s advertisement contained the exact text of Passport Health’s marks. However, the court held that any confusion from this use in the advertisement was dispelled when a consumer reached Avance’s website.
• Third, the court found that the parties’ services were closely related.
• Fourth, the court concluded that Avance did not realize that the search engine advertisement had continued after it had ordered its marketing company to cease use of the phrase in AdWords.
• Fifth, the court noted that the absence of any evidence of actual confusion over a substantial period of time creates a strong inference that there is no likelihood of confusion. Passport Health did not argue that there was evidence of actual confusion, but instead argued that the district court gave too much weight to the absence of evidence of actual confusion. The Fourth Circuit rejected this argument, and found that no reasonable juror could find a likelihood of confusion where there were six years of overlapping use and no evidence of actual confusion. The court considered the forty-one clicks on Avance’s advertisement to be de minimis.
• The Fourth Circuit did not analyze the remaining four factors—the similarity of parties’ facilities, the similarity of parties’ advertising, the quality of defendant’s product, and the sophistication of consuming public—because they did not apply to the facts of the case.

Having rejected the trademark infringement and passing-off claims, the Fourth Circuit noted that unfair competition claims made in the context of trademarks require “imitation of another’s [mark] that would likely mislead prospective purchasers.” Since there was no likelihood of confusion, there was no likelihood that Avance’s mark would mislead prospective purchasers.

Unsurprisingly, the court rejected the section 75-1.1 claim based on the same analysis. The court noted that a section 75-1.1 claim predicated on a trademark infringement claim requires “a tendency to deceive.” Thus, the fact that there was no likelihood of confusion resulted in summary judgment as to this claim as well.

Takeaways

Passport Health offers insight into the new frontier of internet advertising by AdWord bidding. While trademark cases require fact-intensive inquiries, this case shows the Fourth Circuit is willing to reject claims that purchasing a trademarked phrase as an AdWord violates the Lanham Act—and by extension, claims for unfair competition or violation of section 75-1.1. Further, it shows that, in trademark disputes, section 75-1.1 and unfair competition claims may continue to rise and fall with the trademark infringement claim.

Author: Preetha Suresh Rini